In Washington, a Renewed Interest in Diversifying Energy Sources

03/22/11

By The Abraham Energy Report, March 2011

Diversification remains the nation’s best hope for guaranteeing a reliable and plentiful supply of energy far into the future—and the time may have finally arrived where the economics, politics and technology have aligned to compel Washington to forcefully champion a diversified energy strategy.

U.S. Rep. Fred Upton, chairman of the U.S. House Energy and Commerce Committee, told a Washington energy forum—sponsored by The Abraham Group and Bloomberg Government—that Congress needs to actively seek a more varied energy mix to meet the increasing need for electricity—both for economic growth and to service the growing number of electric and hybrid vehicles.

Electric vehicles are “where we need to go, but, of course, you have to have the energy on the other side of that cord to propel the vehicle,” said Upton, R-Mich. “That’s one of the reasons why we have to increase domestic production of electricity by 30 to 40 percent by the end of the next decade, not only because our economy is going to improve but also because we have these new vehicles that are going to tap into it.”

“We’re a country with great resources that we ought to be able to utilize,” Upton added. “We shouldn’t turn our back on what is here. ...That’s the agenda we’re going to try to pursue in our committee.”

Thomas Kuhn, president of the Edison Electric Institute, agreed, noting that it is essential that the United States move beyond talk to action. It must build an energy infrastructure that can support the mounting demand sparked by electric vehicles. “There is a changing dynamic on what the priorities are on energy issues, and they are changing because of the transportation sector and our dependence on foreign oil. …Republicans and Democrats are saying we need all the options. We can’t foreclose on any of the options.”

Accenture, the global management consulting company, forecasts there will be 1.5 million electric vehicles in the United States by 2015, and more than 10 million are feasible by 2020. Automobile manufacturers here and around the globe are introducing new electric and hybrid vehicles with increasing frequency to respond to the public’s interest. In 2011 the market for plug-in vehicles in the United States will be flooded with entries from the top automobile manufacturers as well as new hybrid manufacturing companies. The market leaders are expected to be the Toyota Prius, Chevrolet Volt, Nissan LEAF, Ford Focus Electric, Tesla Roadster, Fisher Karma, Honda Fit EV, Mitsubishi I and Daimler Smart Fortwo ED.

“We need to be serious about diversification of energy sources,” said Spencer Abraham, the Chairman and CEO of The Abraham Group and former U.S. Secretary of Energy. “We’re going to need new resources if electric vehicles are really going to take off in the United States. We’ll need serious baseload and that means clean coal and nuclear energy. We are not going to be able to do it with renewable energy alone.”

Abraham and Upton were joined by a distinguished group of energy advocates at the forum, including Dave McCurdy, President and CEO of the American Gas Association, Denise Bode, CEO of the American Wind Energy Association, Daniel J. Weiss, Senior Fellow and Director of Climate Strategy at the Center for American Progress, and Bob Simon, Democratic Staff Director for the Senate Energy and Natural Resources Committee.

In recent years, the U.S. energy landscape has become more diverse. While oil remains a critical energy resource, utility companies have looked to expand their energy mix with fossil fuel and renewable resources. The examples of this U.S. diversification are many:

More than 6500 MW of new coal capacity was added in 2010, and some 8000 MW is under construction.

Total natural gas reserves increased by 11 percent with potential shale gas production in 2009;

Twenty percent of the nation’s electricity comes from nuclear power, and plants are operating, on average, at 90 percent of capacity;

As of the third quarter of 2010, there were 530 MW of new photovoltaics installed last year, up from 435 MW in installations in 2009; and

Fourteen states have installed more than 1000 MW of wind power, and 37 states have at least some utility-scale wind power installed. Wind power accounted for 40 percent of all new power selected by utilities in 2008 and 2009.

Upton noted that nuclear power plays a vital role in U.S. electricity production, and Congress needs to speed the federal process for renewing licenses and seeking new ones. “On the merits, it shouldn’t take much longer than two years to process an application for an extension yet we see some now that are taking four and five years,” said Upton. “That is too long. We need to streamline the process otherwise we’ll be taking a lot of megawatts off-line.”

Not surprisingly, renewable energy producers are seeking the same sort of tax incentives and federal research and development opportunities that fossil fuel producers have long enjoyed, both to keep kilowatt prices affordable and to encourage the sector’s growth. “It is in the national interest to have an all-of-the-above policy on energy,” said Bode. “I think the renewable sector deserves the same sort of long-term support [given to fossil fuels] to become part of the long-term energy mix.”

Given today’s federal budget climate, it may be difficult to find support to grow the number and size of financial incentives to purchase electric vehicles or to support renewable energy development and research. Republican leaders have made it clear that deficit reduction is their top priority in this Congress, but energy advocates are hoping that economic pressures may increase interest in economy-building incentives. “We need to create an incentive for people to buy an electric vehicle, and we need subsidies to help finance new technology,” said Weiss, noting that the federal government’s financial incentives proved very effective with advanced battery technology. “When President Obama took office, we had two advanced battery facilities in this country and now there are two dozen.”

While electric vehicles do hold great promise for the future, McCurdy suggested that to win congressional approval and public support for federal financial incentives to broaden energy resources, advocates need to show the incentives make good economic sense and provide greater security for the United States as well. “As much investment that has gone into electric vehicles, they’re still in the 3 percent range of the total auto fleet in terms of annual sales,” said McCurdy. “Scaling it is going to be a real challenge.”

The Abraham Energy Report, which provides analysis and viewpoints on important energy and geopolitical issues and current events, is sent several times a year to clients and friends of The Abraham Group.